Thursday, January 13, 2011

Climate change comments

I was chatting with Per this week about weekly food price volatility, which has been up significantly since the food price spikes. We've been analyzing the trends in food price volatility for the time period during which we have weekly data. For some commodities (e.g. wheat and maize) price variation has been increasingly fairly steadily since the mid-90s. For other commodities (e.g. rice) price variation was lower between the mid-90s and the food price spike. He opined (reasonably) that rice is more often irrigated than wheat and maize, so their price volatility is more dependent on weather fluctuations. Makes sense.

What surprised him was I don't think climate change has much to do with post-spike volatility. So let me put my thoughts out here and feel free to improve my understanding.

Climate change is fundamentally a gradualist story. Even the most apocalyptic scenarios involve a change of 1 degree Fahrenheit per decade. This decade has seen an increase of half a degree Fahrenheit and last decade saw less. ANY story that blames climate change for a difference from one year to the next has to involve a severe threshold effect: global temperatures rise by 0.1 degrees Fahrenheit and massive crop failures ensue. Something like that. I was shocked this year to hear a local plant scientist arguing on NPR that climate change had, from one year to the next, caused massive growth in poison ivy, oak, etc. growth and pain. Ivy is just not that sensitive a plant. So while I freely acknowledge the role of climate change in increasing food production volatility from 1980-2010 (increasing temperatures, rainfall variation, extreme weather events, etc.) I strongly doubt that it makes much difference between 2006 and 2008.

Climate change does not happen smoothly. There are regular downs even while the gradual trend is up. If you like numbers, here are some that show that even though 2001-2010 were warmer than 1991-2000, the coldest year in this decade was 2008 with 2005 and 2010 tie-ing for warmest. Since 2005 was warmer than 2006-2009, the food price spike would have happened several years earlier if that were the prime culprit. The three warmest months in the last decade were March of 2002 and 2010 and January of 2007 (yes, Virginia, there is a southern hemisphere) and there was no panic in 2002. Yes, this is not a formal analysis, but this also isn't a formal publication venue. Suffice it to say, the initial data do not look good for a climate change story.

Where I do place the blame is persistence of memory. Food prices were recently high, so speculators who wouldn't normally be interested in food commodities are paying attention; commodities in general are getting much more financial game thanks to the recession; governments are still adjusting their food policies in response to the last food crisis and that uncertainty increases volatility; Russia declares an export ban on wheat and so people start buying wheat in anticipation of the next spike even though the export ban is meaningless since Russia is now importing wheat. I imagine - we don't have data on this, sadly - that food price volatility was fairly high for several years following the 1973-74 food price crisis despite the onset of the long downward trend we enjoyed after. It takes time for volatile markets to calm down. The increase in weekly wheat price volatility happened just after the 1996 food price spike, after all.

Thankfully we aren't seeing the panicked responses from governments that have a lot of influence in food markets like we did a few years ago. I'll be putting up another post either today or tomorrow about the current high food prices, some of which are quite high. It was largely government reactions that turned rising food prices into a panic, and as long as governments avoid the same round of export bans and other policy reactions we saw last time, we should be okay. But more on that next time.

No comments:

Post a Comment